At the end of August, the U.S. Court of Appeals for the Ninth Circuit issued a terse opinion in Cobbler Nevada v. Gonzalesthat heads off a potential circuit split on the standards for contributory copyright liability.

Cobbler Nevada owns the copyright in the film The Cobbler. Cobbler Nevada identified an IP address in Portland, Oregon from which The Cobbler had been downloaded and distributed multiple times. After receiving no response to the 400 notices of infringing activity it sent to the IP address, Cobbler filed a copyright infringement suit against the unknown holder of the IP address. Records subpoenaed from Comcast, the ISP, revealed that Thomas Gonzales was the subscriber associated with the IP address. Gonzales operated an adult foster care home where residents and visitors could access the Internet via the IP address.

Cobbler amended the complaint, naming Gonzales as the sole defendant for direct and contributory infringement claims. Cobbler alleged that Gonzales copied and distributed the film; or, in the alternative, that Gonzales facilitated and promoted use of the Internet for infringement of Cobbler’s copyrights by failing to “reasonably secure, police, and protect” the use of his Internet service. Furthermore, notwithstanding having been sent 400 notices of infringing activity, Gonzales had “failed and refused to take any action whatsoever and …continued to allow infringing activity after such notices.” The district court dismissed both the direct and contributory infringement claims. The Ninth Circuit now has affirmed the district court’s holdings.

Direct Infringement

The Ninth Circuit found that to establish direct infringement by Gonzales, Cobbler had to show that Gonzales himself violated one or more of Cobbler’s exclusive rights. However, “the only connection between Gonzales and the infringement was that he was the registered internet subscriber and that he was sent infringement notices.” Because numerous residents and visitors used the same IP address, Cobbler could not prove that Gonzales himself infringed the copyright. On this basis, the Ninth Circuit found that the district court had correctly dismissed Cobbler’s direct infringement claim.

Contributory Infringement

The Ninth Circuit next considered Cobbler’s contributory infringement claim. The Ninth Circuit’s discussion of contributory infringement resolves some of the confusion surrounding this doctrine, particularly in the Ninth Circuit, and eliminates the possibility of a split with the other circuits.

Unlike the Patent Act, the Copyright Act does not expressly establish secondary liability. Instead, courts have developed secondary copyright liability principles, often borrowing from the Patent Act and other areas of the law. Two theories of liability have emerged: contributory infringement and vicarious liability. This case concerns only the contributory infringement theory.

The Second Circuit in 1971 in Gershwin Publishing v. Columbia Artists articulated the traditional standard for contributory infringement: “one who, with knowledge of the infringing activity, induces, causes, or makes a material contribution to the infringing conduct of another.” And the knowledge prong of the test was satisfied if the defendant had actual or constructive knowledge of the infringement—if he knew or should have known of the infringing activity.

Almost 35 years later, the Supreme Court in MGM Studios v. Grokster announced the standard for contributory copyright infringement as: “one infringes contributorily by intentionally inducing or encouraging direct infringement.” Significantly, this formulation is narrower than the Gershwin formulation; it requires intent, not just knowledge. Thus, Grokster changed the test for contributory infringement from one based on knowledge to one based on intent. To be sure, in some cases, a court might have to presume the defendant’s intent based on his knowledge, but the focus of the inquiry must be the defendant’s intent.

Additionally, Grokster refined the standard for contributory liability articulated by the Supreme Court in 1984 in Sony v. Universal. Grokster explained that “one who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps to foster infringement, is liable for the resulting acts of infringement by third parties.” Grokster added that “in the absence of other evidence of intent, a court would be unable to find contributory infringement liability merely based on a failure to take affirmative steps to prevent infringement, if the device otherwise was capable of substantial noninfringing uses.”

Rather than just accept that the Supreme Court in Grokster had adopted a new standard for contributory infringement, some lower courts (particularly in the Ninth Circuit) attempted to reconcile their earlier decisions with Grokster. These courts appeared to treat “intentional inducement” as a new species of contributory infringement that existed alongside the traditional, knowledge based contributory infringement.

However, in this decision, the Ninth Circuit squarely followed Grokster—and its interpretation of Sony—without qualification. Thus, it stated that “our circuit has identified two strands of liability following Sony and Grokster: ‘actively encouraging (or inducing) infringement through specific acts’ or ‘distributing a product distributes use to infringe copyrights, if the product is not capable of ‘substantial’ or ‘commercially significant’ uses.”

With respect to the first strand, the Ninth Circuit found that Cobbler’s complaint “lacks any allegations that Gonzales ‘actively encouraged or induced infringement through specific acts.’” In particular, “no allegations suggest that Gonzales made any ‘clear expression’ or took ‘affirmative steps’ to foster infringement—Gonzales’s only action was his failure to ‘secure, police, and protect’ the connection.” And “because a ‘failure to take affirmative steps to prevent infringement’ alone cannot trigger liability,” Cobble failed to “state a claim to relief that is plausible on its face.”

Turning to the second strand, the Ninth Circuit found that “providing internet access can hardly be said to be distributing a product or service that is not ‘capable of substantial’ or ‘commercially significant noninfringing uses.’”

In short, the Ninth Circuit found no liability resulting from Gonzales’s continued provision of Internet access to residents and visitors, even though he knew that at least one of them was alleged to be using it to engage in infringement.

Eliminating a Potential Circuit Split

The Ninth Circuit’s decision is consistent with the Fourth Circuit’s decision this past February in BMG Rights Management v. Cox Communications, discussed here. The Fourth Circuit reiterated the Grokster standard, emphasizing its requirement of intent, and rejected the constructive knowledge or negligence (knew or should have known) standard advocated by the plaintiff. The Fourth Circuit observed that generalized knowledge that infringement was occurring somewhere on Cox’s network did not meet Grokster’s requirements. Rather, Cox had to have “knowledge that infringement is substantially certain to result from Cox’s continued provision of Internet access to particular subscribers.” In other words, in order to be contributorily liable, Cox had to know which specific subscribers were substantially certain to infringe if it continued to provide them with Internet access.

Likewise, the Ninth Circuit dismissed the contributory infringement claim because Cobbler made no allegation concerning a specific resident or visitor; it simply informed Gonzales that someone was using his Internet connection to infringe. The Ninth Circuit noted that Cobbler’s theory of liability “both strays from precedent and effectively creates an affirmative duty for private internet subscribers to monitor their internet service for infringement.” The Ninth Circuit added that “imposing such a duty would put at risk any purchaser or internet service who shares access with a family member or roommate, or who is not technologically savvy enough to secure the connection to block access by a frugal neighbor.” The Ninth Circuit concluded that “this situation hardly seems to be one of the circumstances in which it is just to hold one individual accountable for the actions of another.”

After the Fourth Circuit’s rejection of the constructive knowledge standard, some observers suggested that there may be a circuit split, particularly with the Ninth Circuit. The Ninth Circuit’s Gonzales decision minimizes the appearance of a split by expressing the same reasoning as the Fourth Circuit in Cox.

Intellectual Property

The Internet enables the free exchange of ideas and content that, in turn, promote creativity, commerce, and innovation. However, a balanced approach to copyright, trademarks, and patents is critical to this creative and entrepreneurial spirit the Internet has fostered. Consequently, it is our belief that the intellectual property system should encourage innovation, while not impeding new business models and open-source developments.

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